Clearwire recently completed the acquisition of Sprint’s WiMax assets. Sprint’s assets merge together with Clearwire’s original WiMax assets to create the nation’s largest WiMax operator.
I hate to beat up a local business, but Clearwire/Sprint represents a perfect case study of the perils of:
1) Letting ego drive strategy instead of market fundamentals
2) Launching into the marketplace too soon
Clearwire originally launched in smaller American cities where fixed-line consumer broadband was not widely available (making wireless broadband an attractive option). But, not content to fully exploit this niche, Clearwire instead began building out and promoting wireless broadband networks in first-tier cities like Seattle with a product that provided inferior speeds, service, and value. Instead of maximizing their niche strategy and waiting for technology and execution that provided a compelling value proposition for first-tier markets, they chose to launch with a sub-optimal offering and significantly increase their cash burn. I would argue that Clearwire made a mistake going after tier one cities when they did (destroying valuable brand equity they’ll need later).
Meanwhile, Sprint was facing its own challenges in the wireless market (where they were now #3) and hoped WiMax would somehow propel them back into the top spot. Millions of dollars later Sprint decided the WiMax effort was a distraction and a money pit and agreed to merge their newly created Xohm unit into Clearwire in order to shore up their balance sheet and restore focus to their core business.
Collectively, Clearwire and Xohm have burned through a ton of cash and expect to lose an ever increasing amount now that they are starting to build out their network. A network they are starting to build out 1-2 years too soon. Why do I think that?
First, WiMax-capable mobile phones are a rarity and it will be another year before smart phones really start exploding in the United States. Plus, there are only a few laptops currently that come with WiFi/WiMax chips built-in. Given current economic conditions, in one to two years a huge majority (probably 70-80%) of people will still have laptops, desktops, and mobile devices without the capability of connecting to Clearwire’s network. That means very few urbanites are going to subscribe to the network they are building.
So what should they do?
Delay building the network. Delay the start by 1-2 years. Lobby Congress to help make it an infrastructure project (Why not? – everyone else has their hand out). Roll out the network in line with technology adoption, not in advance of it.
Begin building the network when combination WiFi/WiMax capabilities begin to be built into the cheapest laptops, desktops and smart phones. If Clearwire starts building the network in network in 1-2 years instead of now, they’ll be able to install faster or longer range hardware (probably for less), and there will be exponentially more people who will see the value of switching and potentially ditching both their fixed broadband and mobile carriers.
Personally I would love nothing better than to pay $40-60 a month and get both mobile phone service and broadband (for home and to go). If Clearwire can deliver that, I’ll be first in line.